The closely watched Dow Jones industrial average got a tuneup Tuesday, with Bank of America, Hewlett-Packard and aluminum producer Alcoa dropping from the benchmark group. The companies will be replaced by the financial firm Goldman Sachs, athletic apparel maker Nike and payment processor Visa.
S&P Dow Jones Indices, which decides what companies are in the 30-firm index, said Bank of America, HP and Alcoa were let go in part because their stock prices were too low.
The Dow Jones industrial average is weighed by price, so the higher the stock price of a company, the more it is represented in the index. The three companies that were dropped made up only 3 percent of the total average, according to David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.
The change, which will go into effect the morning of trading Sept. 23, was also made to create a different mix of industries, said Blitzer, who added that Goldman Sachs’s addition will result in a bigger representation by financial firms.
“There’s no intention to pick winners by any means,” said Blitzer, who cautioned against viewing the changes as any judgment on whether the companies were worthy of investment.
But the news confirmed the struggles of those being cut.
Shares of Bank of America, selling at about $14 a share, have never fully recovered from the financial crisis. HP, at about $22 a share, has been trying to figure out its next act under chief executive Meg Whitman, as demand for PCs has dropped. And Alcoa, the country’s biggest aluminum producer, has faced diminished fortunes. The price of aluminum has fallen, partly because of lower demand in China. The company’s stock price is about $8 a share.
Changes of this magnitude to the Dow are rare. The last time the so-called averages committee switched out three companies was in April 8, 2004.
Companies like Apple and Google are not on the list, probably because of their stratospheric stock prices. IBM makes up the largest portion of the Dow, followed by Chevron and 3M.
While other aspects of the economy struggle, the stock market has been riding high. The Dow hit an all-time high last month. Adjusted for inflation, the Dow’s last peak was in 2007.